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The WTO Needs to Focus on the Underlying Causes of Unfair Trade Rather Than Undermine Legitimate Trade Remedy Laws

August 11, 2016

In a rules-based system, the rules are developed to permit the smooth functioning of the members within the system by identifying what can and cannot be done. Stop signs and traffic lights are common in nearly all societies to permit the movement of people and goods in a manner that both facilitates movement and ensures safety and order.

[Terence P. Stewart | August 9, 2016]

The trading system has had, for nearly seventy years, a large number of agreed rules for the development of trade. When countries join the WTO, they agree to bind tariffs at particular levels, to generally not use quotas, to value imported goods in certain ways, and to not discriminate between members on a range of matters. The rules-based system also recognizes that members should recognize and protect intellectual property rights, be able to develop a wide range of regulations to protect the health and safety of plants, animals and people as long as not done in a discriminatory manner, and have the right to have trade conducted in ways that don’t cause injury to a domestic industry by price discrimination or government subsidization from trading partners. Such rights are not exceptions to the rules-based system but, rather, integral components of it.

Despite this simple reality, there is within the WTO Secretariat and Appellate Body an apparent bias against the use of trade remedies despite the clear right of members to use such remedies to address injurious dumping or subsidization or use safeguard actions.

The bias can be seen in the statements of the Director-General, in the reports from the Secretariat cataloguing “trade restrictive” measures taken by members, by the overall approach by the Appellate Body to limit the utility of trade remedies (despite the language of Article VI of GATT 1994 which states that injurious dumping is to be “condemned”).

Take, for example, the statement of Director-General Roberto Azevedo on July 25, 2016 on trade monitoring that claimed that there was a growing number of trade restrictive measures by WTO members:

We have long been concerned about the growing stockpile of the post-2008 trade-restrictive measures, and this report suggests that this trend may be continuing.

The overall stockpile has increased by 11 percent during the review period. Out of the more than 2,900 measure recorded by this exercise since October 2008 only 25 percent have been removed. And these figures also include trade remedies.

* * *

Looking at other findings of the report, a higher number of trade remedy investigations per month was recorded during this review period compared to the previous report.

The Director-General was summarizing findings in the semi-annual report, Report to the TPRB from the Director-General on Trade-Related Developments (4 July 2016). WT/TPR/OV/W/10. There is a detailed review in the report of the number of antidumping, countervailing duty, and safeguard actions initiated and which countries were affected by such actions. Pages 24-36. Chart 3.1 on page 24 shows a “Stockpile of trade-restrictive measures” with a note indicating that the “Stockpile of restrictive measures includes measures listed in Annex 3 and initiations of trade remedy actions”.

Yet the “stockpile” doesn’t include patent or other intellectual property cases involving imports, seizures of counterfeit or otherwise prohibited goods, commencement of antitrust or other actions involving foreign actors, etc. While competition policy is not part of the WTO rules set, trade remedies are not the only rules that, when utilized, can have the effect of regulating trade. So why are trade remedy actions dubbed as trade restrictive measures? There has never been an explanation, and there is nothing that logically explains the singling out other than institutional bias.

Moreover, as would be true of any rules that vary in the frequency of utilization, the variation typically reflects underlying conditions in markets. Thus, an increase can be expected in certain situations and a decrease in others. Neither development is a per se “good” or “evil”.

The bias against trade remedies can be seen in the actions of the Appellate Body over its first 21 ½ years of operation, whether the bias is conscious or unconscious by the AB members and the AB Secretariat. While injurious dumping is to be “condemned” according to Article VI:1 of the GATT 1994 , no Appellate Body decision has ever interpreted other provisions of the Anti-Dumping Agreement to see that injurious price discrimination is condemned in fact.[1] Indeed, as reviewed in a long list of articles, the Appellate Body has construed all three trade remedy agreements to seriously undermine their utility.[2] Indeed, having written a negotiating history on the Uruguay Round negotiations, many of the actions of the Appellate Body have created agreements in the trade remedy sphere that are unrecognizable to that which was negotiated and agreed upon.

The trading system is in a period where increased use of trade remedies is needed absent correction of underlying causes of disequilibrium.

As has been reviewed in other articles, the world trading system is facing challenges from unprecedented global excess capacity in a range of manufacturing sectors – including steel, aluminum, paper, glass, tires and many others. China’s national policies have resulted in much of the global capacity glut – excess capacity in some industries is equal to the total capacity of the developed world! There are no macro-solutions provided under the WTO to such situations regardless of which countries are contributing to the capacity glut. The size of the problem means that producers in many parts of the world are being buffeted by dumped or subsidized imports and face the closure of plants and loss of jobs absent resort to WTO-consistent trade remedies. As a WTO news release from April 29, 2016 noted, “The problems in the global steel sector are prompting governments to increase their use of trade remedy measures to protect local producers, WTO members were told in a series of meetings during the week of 25-29 April.” Anti-Dumping: Problems in steel sector prompting rise in trade remedy measures, WTO members told, (29 April 2016) https://www.wto.org/english/news_e/news16_e/anti_29apr16_e.htm. In such a situation, resort to trade remedies in increased numbers is an expected and correct response to the underlying factual situation.

The need for companies and workers to use trade remedies flows from the lack of usable global tools to prevent, in the first place, the generation of such excess capacity or to provide a solution so the creator(s) of the problem addresses it quickly when recognized vs. distorting global markets for years or even decades and forcing others to pay for the actions of those creating the excess capacity. Better compliance with full subsidy notifications by countries like China would help other trading partners flag likely potential problems. The bilateral talks between the US and China and the EU and China and the efforts within the OECD to look at the steel sector are make-shift efforts to cover for the lack of a viable option within the WTO. Ultimately, the talks and other efforts are limited by China’s willingness to actually take responsibility to eliminate its excess capacity in a time-sensitive manner. For companies and their workers and communities around the world facing the tsunami of imports caused by such excess capacity, resort to trade remedies may be the only WTO-consistent option for an outcome that is acceptable.

Rather than flagging the use of trade remedies as problematic, the WTO and its members should first commend the use of trade remedies as legitimate redress to huge trade distortions resulting from government mercantilism. Then the WTO must systematically address the current set of underlying problems and work for a speedy resolution to those, including through the adoption of new rules to address what will likely be an ongoing problem of state distortions in the creation of massive excess capacity in various manufacturing sectors.